Category Archives: economic development

. Old adages die hard. Just consider the longevity of Adam’s Smith characterization of the self-regulating market as an invisible hand in his classic work, The Wealth of Nations. As Smith opined, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

This sentiment, a persistent trope reverberating from one generation to the next, has become a center-piece of the American ethos as well as a mainstay of the Republican party. Nowhere is this more evident than in the on-going Republican electoral campaign. Thus, it is only by invoking the mantra of the invisible hand that Romney can criticize President Obama’s economic strategy, and get away with it, without having to lay out a strategy of his own. He claims to have the magic formula! So, instead of policy ideas, we hear the old refrain, “what’s good for business is good for the country,” or as updated by Romney, “What’s good for Bain is good for the economy.”

The Tooth Fairy (courtesy of zazzle.com)

Call me a skeptic, but having faith in the invisible hand today seems no different to me than believing in the Tooth Fairy. After all, no one can seriously claim that bankers, investors, and equity firms, such as Bain, were not pursuing their own interests when the economy went belly up. How else to explain that big business magnates increased their wealth dramatically in the wake of the 2008 recession, while those lower on the rung experienced calamitous losses. But this begs the question: if businesses were doing what they are wont to do, why then did the market fail to regulate itself? Might this be black magic?

Perhaps is is time to forego the rhetoric of the Republican Party and take a hard look at Smith’s long-standing dictum. To date, neo-classical economists offer little hope in this regard: Try as they might, they have yet to explain how individual actions at the level of the butcher or the baker translate into macro level outcomes, whether good or bad. Fortunately, some nontraditional economists, viewing the economy from evolutionary and complexity perspectives, have provided some promising new insights.

Robert H. Frank, in his book The Darwin Economy: Liberty, Competition, and the Common Good, addresses the issue of the invisible hand head on. As he contends, Darwin’s evolutionary theory, especially as it relates to the role of competition, is far more accurate about the nature of economic life than Adam Smith’s account’s in The Wealth of Nations. In Frank’s words:

When the ability to achieve important goals depends on relative consumption, as it clearly does in a host of domains, all bets regarding the efficacy of Adam Smith’s invisible hand are off. Notwithstanding the uncritically enthusiastic pronouncements of many of Smith’s modern disciples, unbridled market forces often fail to channel the behavior of self-interested individuals for the common good. On the contrary, as the pioneering naturalist Charles Darwin saw clearly, individual incentives often lead to wasteful arms races.

Combining the wisdom of evolutionary and complexity thinking, economist, Erik Beinhocker points out that the equilibrium outcomes, associated with the invisible hand, are entirely unrealistic. As he notes in his pathbreaking book, The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics, the economy is not a static phenomena, but rather a dynamic, complex adaptive system, which is subject to oscillations, power laws, and phase transitions. Moreover, outcomes, as traditional economists would have us believe, are not the product of predictable linear processes; instead, they emerge from the bottom up as the result of the constant interactions and adaptations that take place at all levels of the system. Hence, policy interventions–be they Republican or Democratic–may play a role in determining outcomes, but they are only one factor in a myriad of influences on the economic system.

rough_seas (courtesy of adpulp.com)

When the economy is conceived in complex, evolutionary terms, the present economic crisis makes a certain amount of sense, unpleasant though it may be. However, what makes no sense at all, given the complexity of the economy, is to blame Obama for the present state of affairs, as Romney so flagrantly does. To the contrary, in times such as these, when the seas are rough and the future uncertain, what’s needed is not someone like Romney, who flips and flops floundering with the waves in the hope that equilibrium will naturally follow, but rather a captain, such as Obama, who will be steady at the helm and stay the course.

Why do I need to learn theory? I want to be a practitioner. So said one of my students in my class on Networks and International Development. A good question, to be sure, and one which–as I could tell by their nodding faces– many of my other students were pondering as well.

Why do I need to learn theory? I want to be a practitioner. A good question to be sure!Â

My first response was to draw upon James Rosenau, and his eloquent justification of theory, provided in the introduction to his book, The Scientific Study of Foreign Policy (1989). As in my case, questioning students had plucked a chord in him, inspiring Rosenau to spell out the benefits and approaches entailed in employing theory as a basis for studying empirical questions. Rosenau makes, what to me are, two really important points. The first aims to help the student think theoretically: practice going up the ladder of abstraction, he says. Ask yourself what your concern is an instance of. As Rosenau notes, rarely do we become interested in isolated events; more often than not, our puzzles are instances of more generalizable, abstract phenomenon–we just haven’t thought about them this way. The second point is just as inspiring. Theory, says Rosenau, is fun.

I couldn’t agree more. Of course, I am the first to acknowledge that theories are essential as a means of organizing ideas, providing coherence to an argument, and allowing comparisons among diverse situations. But theories are also, and -as importantly–capsules of prior knowledge, a shorthand–if you will–of the wisdom of the ages. Nonetheless, theories are not to be accepted at face value; rather they are to be challenged, from every possible perspective, as in a game of skill.

Theories are to be challenged, as in a game of skill

Hence, I like to think of theories not in terms of their truth, but rather in terms of their potentiality. What do they suggest to me, which I might have overlooked. Just as when I go to a clothing store, and see all of the outfits laid out on a rack, I try theories on for size. Does the dress fit? Does it enhance my looks? Is it consistent with the rest of my wardrobe? If not, I leave it on the rack for someone else to fill it out.

I wonder, in fact, what would I do without theory. For example, tomorrow I leave for Beijing to deliver a presentation on Standard Setting: Meeting the Global Challenge, at a conference sponsored by the National Bureau of Asian Research. While I started out with a general idea for the presentation, I was struggling with the question of how I might apply my analysis to the specific case of China, and–more specifically– to developing an appropriate standards strategy that China might pursue.

As good fortune would have it, our reading for class was Sidney Tarrow‘s New Transnational Activism–the very same book that provoked my student’s question about theory. But, herein was the clue to my puzzle: Tarrow’s theoretical discussion suggested that the architecture of our increasingly international society provides opportunities for newcomers to exercise agency in contexts/interstices that are as yet underdeveloped. Based on my analysis of global standards, and Tarrow’s theory about transnational activism, I could identify–as depicted in the table below– just where the standards opportunities for China might lie.

The pudding, it seems to me, proves the point. Theory can, indeed, serve very practical needs!

I have been thinking about interstices a lot these days–that is, ever since one of the Chinese students in my Networks and International Development Class protested that, given institutional lock-in, reforms could never come about in China. I gently begged to disagree. As I told her, and as we had discussed in class, in a networked society, small changes in any one part of the system can have major ramifications throughout. As important, by focusing on these small changes in the interstices of a social order, reformers could remain under the radar, and thereby circumvent the powers that be. The key for those of us who want to bring about change today is to identify the most promising interstices.

The key for those of us who want to bring about change today is to identify the most promising interstices.

Somewhat skeptical, the student persisted, asking for examples. So I provided an account of how the rise of cities in the Middle Ages helped to undermine the European feudal order (Braudel 1992).

It so happened that I was well prepared for the task, having listened only a few days before to a lecture on tape by Professor Teofilo F. Ruiz, in the series Medieval Europe: Crisis and Renewal, which was sponsored by The Teaching Company. As the lecturer had pointed out, although late Medieval cities originally emerged as an off-shoot of feudal land holders, they eventually took on a new, and transformative, life of their own.

Middle age alley by Vincent Giraud

In fact, with the rise of commerce and the city merchants that promoted it, Europe was never the same. This new merchant society, which was based on the accumulation of wealth and industrial performance, gave rise to a new class–the bourgeoise–as well as new institutions –such as the guilds– that sought not only to restrict the powers of the nobility but also to extend the social order outside of the parameters of the feudal world itself.

Where are the critical interstices in our global society today? Recent events in Iran provide a clue. Just as, during the Middle Ages, cities went relatively unnoticed as they developed the commercial resources that allowed them to overturn the prevailing social order, so today Iranian hackers have managed to develop the kinds of net-savvy skills required to create a protest movement in an interstitial, virtual space, making it possible for them to outwit a very powerful and seemingly entrenched regime. As described by Murad Ahmed, writing in The Times Online, June 18, 2009:

It has come as a surprise to many, not least to Iran’s regime, just how effectively the country’s young population has been able to articulate and organize [an] opposition protest on the web. New technologies have turned yesterday’s flashmob into today’s political rally. With elements of the Iranian mobile phone system disabled, the internet has become the organizing medium for the opposition and Facebook and Twitter the tools of choice to communicate and organize dissent.

Further contemplating the notion of interstices, I see a new link between some of the ideas that we discuss in my Networks and International Development class and those that we focus on in my class on The Networked Economy. In the latter, we read Ron Burt, and discuss the resources gained by an organization when it develops structural autonomy by bridging structural holes (that is, the gaps in social structure). With the recent events in Iran in mind, it seems that Burt’s notion of structural autonomy is also apropos for describing that situation. For it would appear that the interstices that I speak of in my development class are non other than Burt’s structural holes where– with a little bit of strategic networking–formidable resources and power can be cultivated.